Poultry: A quiet success story

Geography and vertical integration are key factors in poultry industry's development

Poultry raising is the quiet success story of Ninth District livestock
production. Just consider the following:

Poultry is the livestock sector that has experienced the greatest
success in increasing productive efficiency, whether in terms of cost,
feed efficiency or output per worker.

It produces the livestock products that have experienced the greatest
declines in their real cost to consumers.

It is the only livestock sector that has achieved a greater market
share and growing per capita consumption over the past 30 years.

It is the strongest U.S. livestock sector in terms of competitiveness
in world trade.

Yet bird and egg production gets little notice from the public. If one
scans Ninth District newspapers, it is common to come across references
to hogs and cattle. Structural change in hog production and its associated
effects on rural communities and the environment have been hot topics
in the Minnesota and South Dakota legislatures in the past two sessions.
Low milk prices and declines in the number of dairy farms are frequent
subjects of comment in Minnesota and Wisconsin.

Why does poultry raising get so little attention? Why has it achieved
the successes that it has? Is it the wave of the future for other
livestock sectors, particularly hog and dairy production? Are there
any drawbacks to current concentrated, vertically integrated production
patterns? Can we draw any lessons from the poultry sector that might
apply to technological change as a whole? Examining such questions
can provide insights that in many cases go beyond the sector itself.

Where the chicks are

At one time, the Ninth District was home to many farms with poultry.
On all but a few farms, chickens and turkeys were a minor enterprise with
output used largely in the farm kitchen and the surplus sold to provide
petty cash for the household.

As farming became less diversified, the farm flock of chickens
or turkeys was often the first activity to be jettisoned. Today,
only a very small fraction of district farms raise birds of any
type. Those that do tend to be large and highly specialized, for
specialization has proceeded apace within the poultry sector itself
as well as in farming as a whole.

Poultry raisers now produce either eggs, broilers or turkeys.
Hens that lay eggs are bred to be genetically very different from
broilers raised for meat. Turkeys are raised almost entirely for
meat. Farms that turn out eggs, broilers or turkeys usually do not
hatch their broilers, layers or turkey poults themselves. Producing
fertilized eggs, whether to be hatched for chickens or turkeys,
is a specialty in itself. While the facilities, equipment and rations
used in each specialty are similar, almost no farmers engage in
more than one.

As farm diversity shrank, most poultry production came to be concentrated
in a few states. The periodic censuses of agriculture contain tables
showing the top 20 states and top 100 counties in the United States
in production of a range of crop and livestock products. Whereas
Ninth District states rank high in cattle, dairying, hog, wheat
and corn production, they are not prominent in poultry. Only Minnesota,
ranked second in turkeys sold, eighth in value of poultry sold,
ninth in number of laying hens, and 19th in broilers, makes the
state lists. Minnesota's west-central Kandiyohi County ranks fourth
nationally in turkeys, and 16 other Minnesota counties make the
top 100. Three Minnesota counties are in the top 100 in number of
laying hens, but no other district counties appear anywhere else
in the lists.

The relative economic importance of poultry within states also
varies. In Minnesota, the poultry industry is responsible for 14
percent of farm livestock receipts, and 7 percent of all receipts
by farmers. In no other district state is poultry so important,
making up much less than 1 percent of Montana or North Dakota receipts
and just over 1 percent in South Dakota and Wisconsin.

Why such geographic concentration?

Agriculture in the Ninth District is highly diverse, due largely to geographic
variables such as soil type, topography and climate. When poultry raising
was an extension of the farm or ranch kitchen, over 70 percent of farms
had chickens in Montana and over 91 percent in Minnesota and South Dakota,
according to the 1910 Census of Agriculture.

But when poultry production became more specialized, it concentrated
in a few specific areas of the district. Unlike wheat, sugar beet,
potato or milk production, in which climate, soil and topography
still play a major part, the location of poultry production is now
dictated more by economic considerations such as proximity to feed
sources or processing facilities.

Of these two variables, processing is the more important. Most
broiler, egg and turkey producers are located in Corn Belt regions
of the Ninth District, corn being the base of most poultry rations.
Thus there are few large poultry producers in Montana or the western
Dakotas. But within corn-growing areas of eastern South Dakota,
Minnesota and Wisconsin, most poultry farms are located within 60
miles or so of a broiler, egg or turkey processing plant. Thus Kandiyohi
County, home of Willmar, Minnesota's turkey processor Jennie-O Foods,
and Stearns County, home to Gold'n Plump Poultry, figure prominently
in Census statistics on turkey and broiler production.

Why vertical integration?

Poultry production has the highest degree of coordination or vertical
integration of any livestock sector. Most broilers, eggs and turkeys are
produced by growers who have detailed contractual agreements with processors
or marketers. Some are grown in units owned directly by processing firms,
mostly in the southern or southeastern United States. Hardly any are raised
by purely independent farmers for sale in day-to-day spot markets.

Why is there such a high degree of integration? Most livestock
economists argue that technological innovations developed in the
1950s, innovations in genetics, in nutrition and in management,
were most productive only if applied as a package. Furthermore,
these innovations involved substantial economies of scale and implied
scales that demanded more than the capital available to the average
small farmer. Finally, these innovations resulted in products of
more uniform characteristics, differentiated products that could
be branded, trademarked and marketed in their own identity, not
as a commodity such as ground beef or pork roasts.

All these factors led processors to implement some form of coordination
or integration to take advantage of the efficiencies resulting from
this new technology. Those processors who were able to do so successfully
rapidly gained market share. Older-style poultry processors and
brokers who handled broilers and eggs as commodities fell by the
wayside. The processing industry rapidly became highly concentrated
into a few firms, and as it did, farm-level production did also,
though not to nearly as large a degree.

Is such integration and concentration the future for livestock
production as a whole? Some argue that it is. Kansas City Fed economists
Mark Drabenstott and Alan Barkema examined this question in a series
of research articles early in the 1990s. They concluded that while
there are differences from species to species, the overall trend
was toward greater product differentiation, greater vertical integration,
greater farm specialization, and greater production and processing
concentration.

Others agree, but argue that hog and dairy sectors will not reach
the size or degree of concentration that poultry has reached. "I
just think that there are a number of differences," says University
of Minnesota agricultural economics professor Earl Fuller, "and
I doubt that hogs or dairy will go as far as poultry." In dairying,
for example, it is hard to think of fluid milk becoming as differentiated
a product as Tyson or Perdue chickens or Jennie-O turkeys.

Some observers argue that while specialization and integration
may continue, environmental impacts will place a ceiling over growth
in the size of livestock operations on individual sites. As with
hogs (see fedgazette,
April 1996), some fear that differing environmental standards
between states could cause a race to the bottom. Livestock production
could migrate to those states with loose environmental standards,
often in the South, and that production and processing in the Upper
Midwest will wither away. But other observers note that southern
states such as North Carolina are tightening their environmental
standards for livestock facilities. Moreover, Minnesota, in particular,
has favorable weather, cheap feed and a broad base of experienced
producers.

Do poultry pollute?

Air and water pollution caused by livestock production is a hot issue
in many states, not just those in the Ninth District. The public furor
is largely due to two factors. Livestock operations are getting much bigger
in size and intensity with much larger, more concentrated quantities of
waste. Many farming areas have growing numbers of nonfarmer residents
who have little patience for the externalities of some farming activities,
who are environmentally aware, and are willing and able to take action
in government or with the media to halt such activities.

But while the environmental impacts of large hog and dairy operations
frequently are raised, there has been relatively little controversy
about similarly sized poultry operations. Are they really benign?

"Ripeness," says Shakespeare's King Lear "is all." Change ripeness
to dryness and you have much of the explanation for perceived differences
in the pollution potential of hog or dairy and poultry raising.
Hog manure is about 91 percent water, dairy 87 percent and that
of chickens only 75 percent. All may seem pretty wet, but somewhat
lower moisture levels of most poultry manure means that it generally
behaves as a solid, not a liquid. It usually is allowed to build
up under the birds, and then periodically loaded up and spread on
fields. It seldom seeps into groundwater aquifers, and if protected
from rain and worked into soil after spreading, usually does not
end up in lakes or streams. It can produce objectionable or even
unhealthy gases such as hydrogen sulfide, but generally is less
prone to do so than manure from mammals. And because it is handled
as a solid, moving it usually does not cause the flare-ups of air
pollution that pumping a hog manure pit can occasion.

But as neighbors of large chicken and turkey operations can testify,
poultry is not entirely environmentally benign. Such farms can stink,
often just objectionably, but sometimes to a degree that threatens
health, particularly for people with respiratory problems. Moreover,
poor handling or outside storage of poultry manure can result in
ground or surface water contamination under some conditions. Poultry
raisers need to manage waste carefully to be good neighbors. More
importantly, for the sake of both economic efficiency and equity,
some sort of regulatory mechanism will always be necessary to ensure
that some of the costs of raising poultry are not passed on to society.